Cai Fang is a demographer and economist, currently director of the Institute of Population and Labour Economics, Chinese Academy of Social Sciences (CASS). He is a member of the Standing Committee of the National People’s Congress (since 2008) and author of many books and research articles on China’s demographic transition and the reality of its growth process.  His book, China’s Economic Growth Prospects: From Demographic Dividend to Reform Dividend, combines theoretical reflections and empi..

Poncet, Sandra

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China Perspectives 
2017/2 | 2017
Processual Change in Taiwan
Cai Fang, China’s Economic Growth Prospects: From
Demographic Dividend To Reform Dividend,
Cheltenham (UK), Northampton (MA, USA), Edward Elgar Publishing,
2016, 234+xii pages.
Sandra Poncet
Electronic version
URL: http://journals.openedition.org/chinaperspectives/7367
DOI: 10.4000/chinaperspectives.7367
ISSN: 1996-4617
Publisher
Centre d'étude français sur la Chine contemporaine
Printed version
Date of publication: 1 June 2017
Number of pages: 78-79
ISSN: 2070-3449
 
Electronic reference
Sandra Poncet, « Cai Fang, China’s Economic Growth Prospects: From Demographic Dividend To Reform
Dividend, », China Perspectives [Online], 2017/2 | 2017, Online since 01 June 2017, connection on 23
September 2020. URL : http://journals.openedition.org/chinaperspectives/7367  ; DOI : https://doi.org/
10.4000/chinaperspectives.7367 
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Cai Fang, China’s Economic Growth
Prospects: From Demographic Dividend
To Reform Dividend,
Cheltenham (UK), Northampton (MA, USA), Edward Elgar Publishing,
2016, 234+xii pages.
Sandra Poncet
1 Cai Fang is a demographer and economist,
currently  director  of  the  Institute  of
Population  and  Labour  Economics,
Chinese  Academy  of  Social  Sciences
(CASS).  He  is  a  member  of  the  Standing
Committee  of  the  National  People’s
Congress (since 2008) and author of many
books  and  research  articles  on  China’s
demographic transition and the reality of
its growth process. 
2 His book, China’s Economic Growth Prospects:
From  Demographic  Dividend  to  Reform
Dividend, combines  theoretical  reflections
and empirical work to analyse the engines
of  China’s  growth  and  to  explain  the
deceleration  underway.  The
argumentation highlights the existence of
a demographic dividend, the source of a
sea  of  workers  behind  China’s
industrialisation  and  development
process  until  recently.  The  book’s  main
aim is to signal the end of this demographic dividend, portending the evaporation of
China’s comparative advantage based on low-cost work and the inevitable slowing of
Cai Fang, China’s Economic Growth Prospects: From Demographic Dividend To Ref...
China Perspectives, 2017/2 | 2017
1
the growth rate. The various chapters discuss the main challenges China has to face so
as to avoid getting stuck in the so-called middle income trap and to eventually join the
league of rich nations. 
3 The reflection covers different themes at the heart of the author’s expertise, such as
ageing population, labour’s contribution to growth, migratory flows, income inequality,
and quality of education, for which theoretical argumentation and corrected official
figures are mobilised. The rich and at times technical discussion envisages unavoidable
adjustments  and  perilous  conditions.  The  rest  of  the  book  analyses  rebalancing  of
growth,  from  a  model  drawing  on  an  accumulation  of  factors  (labour  and  public
investment) and export of low-quality manufactured goods, towards a process based on
innovation and domestic consumer demand, especially for services. The chapters on
recommendations  and  policies  and  on  pitfalls  to  avoid  are  particularly  interesting,
especially  given the author’s  proximity to the authorities.  The discussion implicitly
deals with the difficulty of abandoning China’s traditional policy of macro-economic
support such as its  industrial  policies,  regional strategies,  and stimulus packages in
favour of those that would actually boost modernisation of the industrial structure and
innovation. 
4 The book is divided into 12 thematic chapters. At about 15 to 20 pages each, they offer a
persuasive analysis of the sources of growth deceleration, the risks to be overcome if
China is to become a developed economy, and different proposals for economic policies
to get there. The analysis often refers to the experience of China’s neighbours, such as
South Korea and Japan. 
5 The first six chapters discuss the relevance for China of the dual sector development
theoretical  framework  and  demonstrate  Chinese  specificity  when  it  comes  to
demography’s contribution to economic growth. Chapter 1 sets the scene, describing
the advantage of  lagging behind economically  while  in a  trajectory of  catching up:
borrowing, purchasing, and imitating technologies that already exist overseas makes
for  rapid  growth,  which  however  inexorably  slows  as  the  technological  gap  begins
closing. China is nearing this crossroads. Chapter 2 turns to the theory of dual economy
development  characterised  by  a  surplus  of  farm  labour.  In  this  model,  workers’
migration  towards  urban  industry  naturally  fuels  the  industrialisation  process  and
productivity gains. This engine, which worked full steam in boosting China’s growth, is
now nearly extinguished. Chapter 3 relies on recent detailed data to show that in the
middle of the last decade, China reached what is called “the Lewis Turning Point,” after
which the extinction of surplus labour led to wage increases and contributed to growth
deceleration. Chapter 4 describes the end of the demographic dividend linked to the
reduction in the proportion of the working-age population, while Chapter 5 discusses
the inexorably aging population. Chapter 6 examines the possibility of such evolutions,
pegging China in the category of middle-income countries that are unable to join the
ranks of rich nations. 
6 The  last  six  chapters  discuss  the  measures  to  be  adopted  if  China  is  to  avoid  this
scenario.  Chapter  7  relies  on  the  neoclassical  theoretical  framework  of  growth  to
identify scientific and technological innovation as the only way of escaping this trap.
The chapter presents Schumpeter’s “creative destruction” mechanism as a prerequisite
for gains in efficiency and innovation. The author delivers a no-holds-barred criticism
of economic interventionism by the Chinese authorities. He holds up the policies of
macro-economic  stimulus,  support  for  state  enterprises,  massive  investment  in
Cai Fang, China’s Economic Growth Prospects: From Demographic Dividend To Ref...
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2
strategic  sectors,  and  the  Go-West  Development  Strategy  as  bearers  of  nefarious
distortions  blocking  innovation.  Chapter  8  continues  with  a  critical  analysis  of
traditionally pursued macro-economic policies in China, interestingly rejecting the idea
of an inevitable arbitrage between reform and growth. It is this vision that led Chinese
authorities to keep backing inefficient sectors and backsliding on reform, thus leading
to further  weakening.  The author  blames this  for  merely  aggravating the problem,
holding that only reforms (not clearly specified) removing institutional obstacles can
usher in long-term sustainable growth. Chapter 9 is at the heart of recommendations
and policies  for avoiding the two risks the author identifies:  lack of  human capital
indispensable  for  a  growth  process  based  on  innovation,  and  major  structural
unemployment that can cause social unrest. The author warns of the possibility that
China, like Japan earlier, will have to deal with the recent difficulties faced by higher
education graduates in the job market thanks to reduced investment in education. He
holds that the reduction in resources for higher education is behind Japan’s economic
deceleration,  clearly  appealing  to  the  Chinese  government  to  augment  public
expenditure  for  primary and secondary education to  boost  the  quality  of  teaching.
These public expenditures will also cut costs for families, hence boosting demand for
their  children’s  education  and  consumption  in  general.  Chapter  10  focuses  on  the
evolution of inequality in China, presenting data corrected for some imperfections in
the official versions. He points out the need for fiscal reforms to boost redistributive
capacity, and calls on leaders to show political courage in fighting the vested interests
that  naturally  oppose  such  change.  Chapter  11  advocates  strengthening  social
protections and labour market institutions as well as reform of migrants’ rights. The
author bluntly argues for an increase in the ratio of resources handed over to local
governments, which cover a major share of social protection expenditure. The last and
12th chapter reprises the various reforms suggested in previous chapters (ending the
one-child  policy  –  effective  since  early  2016  –  improving  education  and  training,
macro-economic policy reforms, and fiscal reforms) and the details of their beneficial
effects. He emphasises that these should be carried out by the centre and not localities
so as to ensure a legitimate and uniform process throughout the country. 
7 While  containing  some  relatively  technical  passages,  the  book  clearly  explains  the
transition  at  work  in  China  of  a  growth  dynamic  described  by  the  dual-sector
development model based on the works of W. Arthur Lewis towards a corresponding
dynamic in the neoclassical growth framework. The author holds that the transfer of
surplus labour in rural areas towards urban manufacturing, and the ability to bridge
the technological  gap through absorption of  technologies  existing elsewhere in  the
world  largely  explains  China’s  rapid  growth  since  1980.  The  exhaustion  of  these
advantages  that  stemmed  from  initial  underdevelopment  inevitably  mitigates  the
efficiency of a growth strategy uniquely based on capital accumulation due to the “Law
of Diminishing Returns.” The chapters describing demographic aspects – the author’s
field of expertise – offer tables and graphics of great utility. In fact, the author marshals
some  of  the  most  reliable  and  recent  statistics  extant  in  analysing  demographic
dimensions such as the “Lewis Turning Point,” the two demographic dividends, and
population projections.
8 Paradoxically,  the  book’s  highlights  lie  not  in  these  early  chapters  that  review the
universally-known evolutions of China’s economy, even though they most convincingly
illustrate the need for a change in model. The most interesting developments are those
tackling concrete risks related to poor policy management of the transition underway.
Cai Fang, China’s Economic Growth Prospects: From Demographic Dividend To Ref...
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3
The author highlights the need to overcome institutional shackles that prevent the
state from jettisoning direct engagement in economic activities. It is a huge challenge:
promotion  of  market  competition  and  reduction  of  distortions  are  inevitable  for
sustaining innovation and up-scaling, the only ways to counter-balance the inexorably
rising  costs  of  Chinese  labour.  While  the  book expresses  the  author’s  well-founded
worries over Chinese authorities’ capacity to adopt reforms that will inevitably upset
special interests and the effects of which would not be immediately felt, it nevertheless
carries hope. The final chapters offer various reforms that could help China avoid the
“comparative  advantages  vacuum”  after  the  disappearance  of  its  advantages  in
intensive sectors using cheap labour.
AUTHOR
SANDRA PONCET
Sandra Poncet is Professor of Economics at University of Paris 1, currently on CNRS (National
Centre for Scientific Research) deputation to CEFC (sandra.poncet@univ-paris1.fr).
Cai Fang, China’s Economic Growth Prospects: From Demographic Dividend To Ref...
China Perspectives, 2017/2 | 2017
4


Cai Fang, China’s Economic Growth Prospects: From Demographic Dividend To Reform Dividend,

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